THE US AND BRAZIL: allies increasingly at odds

When President Reagan paid his first visit to South America three years ago, expectations were high here for a new era of diplomacy in the Americas. But in his opening speech to businessmen in Sao Paulo, he clearly began on the wrong foot. ``It's a pleasure to be in Bolivia,'' he said to an auditorium packed with Brazilians.

For a head of state, it was a serious gaffe. But the next morning, a Sao Paulo newspaper published a good-humored riposte in a half-page ad: ``The people of Bolivia welcome the President of Canada.''

Today, the good news is that the Reagan administration has since boned up on its atlas. The bad news is that relations between the two giant American nations seem to have lost their sense of humor.

In recent years, a series of disputes involving debt, trade, and foreign policy have set Washington and Bras'ilia increasingly at odds.

The two powers have voted on opposing sides at the UN, swapped accusations of erecting unreasonable trade barriers, and locked horns over what to do about third-world debt. At times, the rhetoric has almost developed into something more serious.

The United States has threatened Brazil with punitive trade sanctions for what it considers highly protectionist policies. Brazil, which announced a temporary suspension of debt payments in February, has warned that failure to reach the right kind of agreement with international banks could push it into a default.

Meanwhile, the US Congress is considering trade legislation that could force strong administration action. And members of a newly elected Brazilian Congress say the country would reject any agreement that meant paying the debt with ``the hunger of the people'' or with increased unemployment.

But with the rising heat of bilateral relations, there is also some light. Top US officials have recently come to the aid of Brazil.

Treasury Secretary James Baker III lobbied other nations to reach an agreement refinancing Brazil's debts to Western governments, waiving the role of the International Monetary Fund. And Federal Reserve chairman Paul Volcker is said to have worked behind the scenes to prevent banks from retaliating for the temporary suspension of payments. Scarlet letter

Back in the 1950s and '60s, the Brazilians used to delight in telling a wry old joke on themselves. ``Brazil,'' it went, ``is the country of the future, and it always will be.'' Told for years in a dozen variations, that joke seemed to brand an image indelibly on this country like some national scarlet letter.

Brazil was the great underachiever, the slumbering giant, a player that seemed destined to remain cast as the perennial understudy in the New World drama. It was almost as if not even the Brazilians took this vast country seriously.

But the good-humored nay-saying belied another view of things - a Brazil of vitality and backbone, rooted in decades of work, growing wealth, and solid, if understated, achievement. ``Brazil on the move,'' an astonished John dos Passos called this country during a visit the American writer made in the late '50s.

Brazil has since harnessed that vitality and hoisted itself up from the status of a virtually one-crop exporter to a world-class industrial power.

The country that used to be known abroad for coffee and Carmen Miranda is now the eighth largest free-market economy and the 18th biggest exporter on the planet. It sells more steel than Britain. Its Gross National Product is larger than all other South and Central American nations combined. Its leading television network, TV Globo, is the fourth-ranked commercial station in the world. Since the return to civilian rule in 1985, it has become the third-largest democracy, behind India and the US.

US-Brazilian affairs were much simpler before the boom years. In the first part of this century, the two nations maintained a friendly, if lopsided, alliance - a so-called ``special relationship'' in which Washington played the role of hemispheric patron state. The arrangement fostered commercial ties and some US financial aid.

In turn, Brazil usually could be relied upon to support US foreign policy. (After a brief fliration with the Axis, Brazil sent thousands of troops to join the Allied cause during World War II.)

Certainly, the financial assistance from Washington was not all Brazil expected. US resources after the war were lavished on the Marshall Plan to rebuild Europe, and in the 1960s, the rhetoric of the Alliance for Progress was far more bold than the grants-in-aid it dispersed.

But US private investment grew in the post-war decades, and Brazil drew substantial sums from the World Bank and Inter-American Development Bank, to which the US is a principal contributor. Now, though, the North-South understanding has become strained.

Suddenly, it seems, emergent Brazil and the US are squaring off on a number of issues in venues all over the globe. In September, in Punta del Este, Uruguay, Brazilian negotiators fought the US position to include ``services'' (such as banking and data processing) in world trade talks under the General Agreement for Tariffs and Trade.

At the UN last year, Brazil sponsored a law for a nuclear-free South Atlantic, an initiative the US opposed, fearing it would restrict access for the US Navy. Brazil sold grain to the Soviet Union despite a US boycott, and, as a member of the Contadora support group, denounced US funding of the contras in Nicaragua. Last year, Bras'ilia reestablished diplomatic ties with Cuba.

Brazil's call for debt relief through restructuring of the world financial order, and criticism of the US budget deficit as driving up world interest rates, have not been warmly received in Washington.

Trade is probably the sorest subject of all. The US, burdened by a $170 billion trade deficit, has labeled Brazil a commercial freeloader.

In November, the Office of the US Trade Representative released its report on world trade barriers. The 20-page section on Brazil, which is termed ``one of the world's most closed economies,'' was the longest in the 300-page report. According to Washington, Brazil petitions as a competitive exporter against protectionism abroad and yet ducks behind a third-world shield to protect parts of its market from foreign businesses.

Its own state firm, Embraer, holds a monopoly on small aircraft. Petrobras, the giant government oil company, controls the growing business in oil exploration and refining. In 1984, the Brazilian Congress approved a ``market reserve'' to foster a domestic computer industry. This so-called ``informatics law'' bans foreigners from the fast-growing market in small computers.

Bras'ilia, for its part, charges that the US promotes free markets only when it enjoys clear advantages, such as in high technology, and slams shut the protectionist portals to products in which it is no longer competitive, such as steel and textiles.

Brazilian companies are second only to Japan in the number of anti-dumping charges and countervailing duty petitions currently being brought by American businesses against foreign firms. Although the Reagan administration has turned down most requests for retaliation, the pressure is mounting.

Brazilian exports to the US fell by about 10 percent last year due to tariff barriers and quotas. A recent decision by the US to remove 28 Brazilian products, ranging from semi-precious stones to thermometers, from duty-free status will cost Brazilians another $400 million a year. Protectionism

Some businessmen in Brazil have returned the charge of protectionism.

Brazilian alcohol distillers claim that the more than $400 million subsidy the US pays domestic producers of ethanol represents an unfair trade barrier.

Under pressure, Brazil signed a voluntary-restraint agreement with the US on export of various categories of steel. Roberto Caiuby Vidigal, president of an industrial-machine manufacturers' association, says the agreement favoring US domestic suppliers of rolled steel ``amounts in practice to a market reserve, precisely what the Americans oppose in Brazil.''

``It seems as though there is a predisposition against us,'' says Benedito Pires de Almeida, a trade consultant at the influential Sao Paulo Federation of Industry.

As Brazil has expanded, it has intruded into a more complicated world equation. The third world's leading industrial power and heaviest debtor has emerged on the scene at the time that the West's superpower, backed to the wall by competition from Japan and elsewhere and weighted down with 12-digit deficits, has grown more vulnerable.

``Brazil is a world power that has to be taken into consideration,'' President Reagan told the news magazine Veja in October. ``Many of our problems with Brazil are similar to the ones we have with countries of Europe and with Japan.''

The US ambassador to the UN, Vernon Walters, put it more bluntly. ``I've got some bad news. Brazil is soon going to enter the ranks of the rich nations,'' he told his hosts on a recent trip to Brazil, only half in jest. Brazilians knew not to laugh. Rich-poor nation

The change is, after all, a new and troubling piece in the intricate puzzle of global relations.

Brazil has both the privilege and the misfortune to rank among the nations economists call Newly Industrialized Countries. The World Bank labels them ``middle income'' nations, and others refer to them as ``graduate'' countries. In a sense they are stretched, as though on a rack of development, between first world and third.

They straddle both worlds, yet belong entirely to neither. Their advanced industrial parks and universities make them competitors in a number of arenas of world relations. Yet their vast burden of misery, illiteracy, and debt make them beholden still to aid and foreign markets. They stand tall among the leading nations and yet they are anchored by backwardness and want.

Brazil now tops this list of rich-poor nations. Brazil and the US circle each other, eyeing one another as new-found rivals. The ``special relationship'' has given way to ``managed conflict,'' as the political scientists describe it. The vocabulary, like the planet, has become more complex.

And the stakes are higher, too. Should the two nations reach some point of serious impasse or rupture in their relations, the effects could readily be felt in the world's financial or trading system.

Brazil's weight is likely to be felt more often, as it moves from its traditional aloofness toward a more active global presence.

It is taking more of a leadership role among developing nations, and has begun to strengthen commercial ties with the Soviet Union. General Secretary Mikhail Gorbachev is expected to visit this year while on a tour of key Latin American nations.

Now the powers in Washington do not have to be reminded where Brazil is. They have gotten a good fix on the giant neighbor to the south. But now that their geography has improved, it will take a mastery of diplomacy on both sides of the equator to settle the disputes that loom so large on the two nations' agendas.

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